Question

Please explain how it is that an Expense can be recorded as - and thus operate as - a net credit and yet still be reported as a debit:

Answer 1

Expenses are nominal accounts and must have a debit balance at the end of accounting year. Expenses are recorded as "-" i.e. a net credit but thereafter reported as a debit. Whenever any expenses in incurred, it is debited but shown on the credit side of T account. For example, Salary paid in cash for $1000. Journal entry for payment of salary in cash will be:

Salary expense Debit $1000

Cash Credit $1000

In the above journal entry, when we post journal entry to ledger accounts, In the cash ledger account, salary expense account will be shown on credit side by $1000 and at the same time, In salary expense account, cash account will be shown on the debit side by $1000. So, whenever posting are done, expenses are shown on the credit side of respective ledger account. Ledger account of expenses are totaled and final figure come in credit side but this final figure will be shown in the debit side of balance sheet. As in our above example, ledger account of salary expense will show balance figure on the credit side by $1000 but salary expense will be shown as debit balance by $1000 in trial balance.